BP Plc lost a court bid to dismiss fraud claims by investors who said the company lied before and after the 2010 Gulf of Mexico oil spill about its accident response capability.
U.S. District Judge Keith P. Ellison in Houston today allowed holders of BP American depositary receipts to go forward with claims alleging violations of U.S. securities law. He dismissed the claims by investors who bought BP ordinary stock, saying his court has no jurisdiction over them.
The judge rejected the investors’ claim that BP lied about its commitment to safety, while finding the company may have exaggerated its ability to respond to a major spill.
“Plaintiffs have sufficiently pleaded facts to demonstrate that BP misrepresented the size of the spill it was prepared to respond to in the Gulf and misrepresented the company’s general spill response capabilities,” Ellison said in a 129-page decision. “They have sufficiently pleaded actionable misrepresentations related to BP’s ability to respond to an oil spill in the Gulf of Mexico.”
The investors said London-based BP publicly touted a commitment to safety while cutting budgets and personnel and rejecting internal complaints. BP also initially hid the true size of the oil-well blowout to limit the impact on its stock price, the investors alleged.
‘Transform a Matter’
The company denied fraud or any lack of attention to safety. Investors sought to “transform a matter involving allegedly negligent processes into an action for securities fraud,” the company said in court papers. “A commitment to safety is not a guarantee that no future accidents will occur.”
Investor securities-fraud suits are among hundreds of claims filed in U.S. courts after the explosion and sinking of the Deepwater Horizon drilling rig in the Gulf of Mexico in April 2010. Eleven people were killed in the blast and hundreds of miles of coastline were soiled in what became the largest offshore spill in U.S. history.
Injury, economic loss and environmental suits are combined before a federal judge in New Orleans. The investor suit, which seeks unspecified billions of dollars in lost share value, is combined with other shareholder actions before Ellison in federal court in Houston. Ellison today also dismissed securities-fraud cases brought by several individual investors.
The company’s prior incidents or any budget-cutting actions can’t be used against BP in a securities fraud case, Ellison said today.
“Simply citing prior examples of safety failures does not render false or misleading generalized statements about BP’s risk profile or the riskiness of its operations,” he wrote.
The judge said that plaintiffs “must allege more than that BP merged offices, promoted employees, and transferred employees between divisions to allege the falsity of BP’s statements regarding balancing cost-cutting measures with its safety program.”